Demystifying the Fiscal Cliff

The Fiscal Cliff is a mix of laws and measures that will be triggered automatically if Congress takes no action between now and year-end on reducing U.S. debt. The resulting forced austerity will reinstate policies that will reduce the 2013 budget deficit by $607 billion (roughly 4% of current U.S. GDP). Yet if the U.S. debt-to-GDP ratio falls from 73% in 2012 to a sustainable 61% in 10 years, how could this be bad? The answer, as always, lies in the details.